Watering down share holding

I've got another question for you legal experts.

If one of my unit trusts is the sole share holder of a company with a total of 1 share, the company owns a property and is classed as a property rich company being it's only asset.

If I decide to issue 1000 shares to another entity, effectively watering down my Unit Trust ownership will this technically incur stamp duty? I'm not selling I'm just issuing stock.

If it doesn't;

In a period of time following this new share issue I sell my 1 share now worth 1/1001 of the company gross value then will the stamp duty be based on the new value of the 1 share only?

Mark
 
From a stamp duty perspective that sounds right, but there will be other consequences unless the new shares are issued at the value of the existing share.

Is the property a pre CGT asset?
 
Take a look at the value shifting provisions (which I think is what jrc was getting at). If the new shares are issued for less than the value of the existing share, then value has been shifted from the unit trust to the other entity and the unit trust will likely be up for CGT (or presumably the unit holders will be - not sure how that works).

And of course if the new shares are issued for the same value as the existing one, then the new entity will be up for an awful lot of moolah!

All just my understanding. I'm not an accountant.

GP
 
I think Duty would be payable because the issue of shares constitutes a disposition (unless issued in the same proportion to existing holdings), therefore if the company has more than $2M worth of land then transfer duty would be applied. Note the Duties Act is now applicable not the Stamp Act (111BA is part of the old legislation).
 
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I loathe this ugly tax - this foul thing that claws in like cancer and eats away at productivity. we were promised it would go, so why is it still here?
 
Thanks for the thoughts, it's not easy to understand. The property I'm actually referring too dose not exist at present but I am planning for future transactions.

If the shares are issued at the net value of the company then depending on what mortgages the company has this could be at a minimal share price.

I'm not sure if some anti avoidance clause covers this.
 
hi all
if the share were 10000 and you sold the shares prior to purchase of the land but the share were being held in escrow so they were in effect non voting or controlled shares and then got given out to the buyer if an when you wanted to
there by diluting your share positionthis should not effect capital gain or duty as they were sold when the company was setup
they were sold for a low amount
any ideas never done it but interesting question
you would have a sale but a delay in the supply of the shares and have bench marks for there take up.

interesting idea
it very hypo but whats the classes view
 
What about if the shares in the company A were held by another company B as trustee for another discretionary trust. Have the trust deed very broad and have the beneficiaries as including office holders/directors/shareholders of company C.

When selling the property you change shareholdings etc of company C. So the controllers of company C can then control the trust holding the shares of Company A and will be beneficiaries of the trust of company A. Actual legal ownership of shares of company A never has to change.

Not sure if this would work or not.
 
hi terry
thats a structure and those structure can be very different and is a very different question as you are not then talking about the changing the internal structure of a company and thats what I think the question is as in water the shares in 1 company.
if the question was how do I change the control of the entity and the costs then it would be a structure and your idea would work but there are alot simpler structure to do that.
you can get changing the controlling entity without any changes to shares in a company nor for that matter the company changing and thats what you are looking at.
and thats a very different question for me
 
What about watering down unit holdings of a trust by issue of again 1000 extra units.

The Trustee dose not change, the units in the trust are watered down and a new director of the Trustee is appointed.

Forget about selling shares or selling units in the trust just keep them as they are, effectivly transfering 99% of ownership and full control without Stamp Duty.... or not.
 
If this is only hypothetical then holding a property in a company means there is no CGT discount if the property is held for more than 12 months before disposal. If you want flexibility then a discretionary trust may be the way to go, even if for other reasons you need to have a unit trust then the DT could own the units in the unit trust
 
JCR this is not a capital gains question, it's change of control/bennefit of an asset without incuring stamp duty.
 
Then the point as to holding in a discretionary trust still applies unless you have this exact situation currently happening, but bear in mind that stamp duty minimisation might still result in a cgt event
 
"What about watering down unit holdings of a trust by issue of again 1000 extra units.

The Trustee dose not change, the units in the trust are watered down and a new director of the Trustee is appointed.

Forget about selling shares or selling units in the trust just keep them as they are, effectivly transfering 99% of ownership and full control without Stamp Duty.... or not."


Same rules apply to unit trusts as to shares so this would not help. If you effectively change the ownership (in a trust or in a company) by 50% or greater and that entity directly or indirectly owns land worth more than $2M then you trigger a liability.
 
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